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Math Help - Required Reserve Ratio and MPC questions

  1. #1
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    cali
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    Required Reserve Ratio and MPC questions

    RRR is 5%. Loans are deposited in checking accounts. If the Fed sells $1000 of US bonds to a commercial bank. What can we expect to happen?


    The money supply will FALL:
    A) by $20,000
    B) by $1,000


    Money supply will INCREASE:
    C) by $20,000
    D) by $1,000


    OR:
    E) The money supply will be unchanged

    ---------------------------------------------------------------------


    An economy in which MPC is .95 and RRR is 10%. If imports increase by 15, what is he change in real GDP?


    A) -300
    B) -150
    C) 300
    D) Impossible to determine with provided information

    --------------------------------------------------------------------

    So, I think the answer to #1 is E, and #2 is D.

    If I could get any help it would be much appreciated, just trying to understand all of this. Thank you very much for your time!
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  2. #2
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    May 2013
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    cali
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    Re: Required Reserve Ratio and MPC questions

    Ok, so I overlooked the first problem! It should be A, because it's 1/.05 = 20(first time around I was doing .5 or 50% ). Then 20 * 1000 = 20,000 and finally it falls, because the Fed is selling bonds. Any help with the other would be appreciated!
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